Credit Crisis Further Weakens Big Newspapers

This credit crisis on Wall Street isn’t good for anyone (except maybe CNBC), but it couldn’t come at a worse time for daily newspapers, which were already in pickle from falling advertising revenues, a drop in subscriptions and reader migration to the Internet.

Take, for example, the pickle that the Star Tribune of Minneapolis is in. As the Wall Street Journal points out, lots of newspaper groups took on lots of debt in recent years, including the Tribune Co. and the McClatchy Co., which owns papers including the Fort Worth Star-Telegram. And you know how bad it is to be in debt these days.

From the New York Times:

The Star Tribune skipped a $9 million quarterly payment to its senior creditors that was due on Tuesday, said Chris Harte, the publisher and chairman. The paper has been in default since June, when it began missing payments on its smaller junior debt.

With advice from the Blackstone Group, The Star Tribune has been trying to negotiate new terms with its lenders, a consortium of banks, insurance companies, hedge funds and others.

The paper has cut its staff and reduced other operating costs, while trying to obtain wage and work rule concessions from its unions.

The default means that lenders could force a bankruptcy, but they have been reluctant to take that step with battered newspaper companies as long as there appeared to be a chance of agreeing on new repayment terms.

The Gannett Co., which locally owns KTHV-TV, Channel 11, and newspapers like USA Today, has also had to tap its credit line. In fact, Standard & Poor’s has put the newspaper giant on credit watch, fearing that revenue declines there could accelerate.

What does all this mean? The Journal puts it this way:

As debt conditions sour, interest rates will go up for many papers, and lenders will impose onerous conditions. Some publishers risk default or even a trip into bankruptcy court.

The bright side? According to the Journal, banks’ — given their current troubles — might be lenient with newspaper, cutting them some slack. Consider the other choice: taking over newspapers, something the Journal says most banks “wouldn’t stomach,” because, really, who wants to be in that business now anyway?

More

Star-Ledger Achieves 200-buyout Goal [New Jersey Star-Ledger]

Newspaper in Minneapolis Halts Debt Payments [New York Times]

Financial Downturn Futher Hurts Newspaper Publishers [WSJ]

For Newspapers, the Storm Gets More Perfect [Forbes]